What is a Fund?

A fund pools together the money from many individuals enabling a fund manager to invest in a broad range of assets. Their aim is to help you grow your money and if required, provide you with a regular income.

The fund manager will invest in different asset types such as cash, bonds, equities and property – exactly what the fund manager buys depends on the investment objective of the fund.

Once you have decided the types of funds that are suitable for you, the next step is to select your funds. But how do you choose from the hundreds of funds on the market?

When selecting a fund, theres are a number of key factors which should be considered:

  • Age of the fund – do you want a fund with an established track record or get in early with a new fund launch? An established fund has a track record so you can review its performance but you should remember that past performance is not a guide to what might happen in the future. However, a new fund launch will allow you to benefit from the growth of the fund right from the start.
  • Size of fund – this is an indication of the fund’s popularity and past success at attracting investors, however there comes a time when a fund is so large that it is difficult for the fund manager to run it. A small fund is often easier to manage.
  • Fund manager tenure – good consistent fund performance often relies on the fact that a fund manager has been managing the fund for some time. However, take care if chasing star performers as fund managers can change jobs.
  • Independent ratings – companies such as Morningstar, Standard & Poor’s and Moody’s provide independent fund ratings for their performance, creditworthiness and consistency of management.
  • Charges – identify and look closely at all the fund charges – are the annual management charges excessive, are there any penalties for withdrawing your money? Fidelity operates a transparent charging structure
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